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The failure to cooperate and coordinate macroeconomic policies will leave countries worse off than an outcome involving cooperation
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| Submitted: Tue Oct 17 2006
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The failure to cooperate and coordinate macroeconomic policies will leave countries worse off than an outcome involving cooperation Most countries around the world interest in international economic cooperation have increased substantially in recent years. This heightened desire to coordinate economic policies with the major economic power is in part a response to the special problems (e.g. the sharp fluctuation in exchange rates) and the changes in the world economy. The world economy has become more interdependent: international trade has increases relative to production for domestic markets and international capital markets have become larger and more active. The failure to cooperate and coordinate macroeconomic policies will leave countries worse off than an outcome involving cooperation. The basic theoretical model of interdependence is the two-country model developed by Robert Mundell (1963) and J. Marcus Fleming (1962). Then McKibbin and Sachs (1991) develop a...
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